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Hottinger Appoints New Chair

Hottinger Group is delighted to announce the appointment of its new Chair, Sarah Deaves.

Drawing upon her extensive background in the wealth management industry, Sarah brings a breadth of experience and a clear vision to Hottinger group. Currently MD of abrdn Financial Planning, Sarah previously served as CEO of Coutts and a wide range of other executive leadership roles across financial planning and wealth management. Sarah is well-positioned to steer our company towards continued excellence. Her strategic insights, coupled with her commitment to fostering collaboration and driving innovation, will undoubtedly increase our organization’s capabilities and market presence.

Mark Robertson CEO Hottinger Group said “With a proven track record of dynamic leadership and innovation, Sarah is poised to support our strategic objectives as we embark on an exciting new chapter in the group’s history.”

Sarah Deaves said “I am excited to be joining Hottinger Group as its first independent chair and to be working with the Board on this next important growth phase”.

Hottinger Group warmly welcomes Sarah to this important new role as its Chair.

October Investment Review: The Paradox of Irresistible Force

by Adam Jones, Researched by Alex Hulkhory


As a foreword to this month’s investment commentary, we wanted to acknowledge the ongoing crisis in Israel and Gaza. Whilst we would never want to downplay the immeasurable social and humanitarian costs of the hugely tragic events over the past month, this is not our area of expertise. In our role as custodians of our clients’ assets, our focus is always through the lens of how any events are likely to impact global asset markets.

Much of last month’s blog centred around inflation, and the ongoing risks this presents to asset prices. Although this remains an important issue, as with markets, our attention this month is focused on the ongoing strength of the US economy. In our view, consumers globally have faced increasing headwinds as extreme inflation and rising interest rates have – in theory – reduced their spending ability.

Unstoppable force, meet immovable object.

Post the Global Financial Crisis in the era of ultra-loose monetary policy and quantitative easing, the old edict “don’t fight the fed” became almost gospel to many market participants. In short, the path of monetary policy drives the overall performance of risk assets. Indeed, against a backdrop of significant tightening in 2022 this adage rang especially true. Asset prices – not just equities – suffered significantly.

Investment markets are forward looking and beyond the impact of changing discount rates, we saw the idea of an impending recession in 2023 creeping into the minds of investors. In our view, this was one of the most widely anticipated recessions in modern history. [i]Bloomberg economics had predicted a 100% percent probability of a US recession by October 2023. Comparing this to the latest figures released by the [ii]Bureau of Economic Analysis, which showed US GDP accelerated to an annual rate of 4.9% in the third quarter of 2023, something doesn’t quite add up…

The investment truism “never bet against the American consumer” has returned to the fore with a bang. We can certainly include ourselves in the list of market participants that have been surprised by the ongoing resilience of US consumer spending. In our view, this strength has been the backbone that has propelled equity markets and US GDP this year. One potential explanation has been the level of COVID savings that were accrued whilst we were all in lockdown. However, we feel this is finite and there are clear signs the US consumer is beginning to feel the pinch. The personal savings rate  [iii]  continued to decline through September, falling to a rate of 3.4%. Whilst we are inclined to side with the Fed, only time will tell who will win out in this battle.

What’s been happening in markets?

October heralded Q3 earnings season, an eagerly anticipated look into many of the big tech names that have propelled markets. Touching on the colloquially named ‘Magnificent 7 (The tech-focused, seven largest constituents of the S&P500), we felt that broadly their earnings were impressive. However, it was perhaps an insight into just how high expectations – and valuations – have become!

Alphabet, the parent company of Google, was an excellent example of this. Despite delivering a meaningful [iv]beat on both earnings and revenue, the stock was punished with a bruising 9.5% fall on the day of results. This was also evident for the companies delivering exceptional results with, at best, anaemic upward movements.

This weakness was also reflected in the broader markets with the [v]S&P500 joining the Nasdaq in official correction territory from the highs reached earlier this year. October was a difficult month for markets generally, with most asset classes delivering negative returns. One particular standout was [vi]gold, up 7.4% over October. As a safe-haven asset this reflects recent increases in geo-political tension.

Looking slightly closer to home it was difficult month for the UK market, which was down more than 3% over October. This may in part be driven by sector composition. Energy is not an insignificant component of the UK market and the sector fell by 8.7% over the month. The economic back drop also remains challenging with [vii]ASR’s Nowcast showing continued deceleration along with PMI’s firmly below 50. In our view, one saving grace is that equity valuations here in the UK remain among the most compelling in the global equity universe.

Return of the bond vigilantes…

Another interesting development has been taking shape in bond markets over the past month. Longer dated bond yields have continued to climb, with US 10-year treasuries almost touching 5% on the October 19th. Despite the implied equity risk premium – the extra return investors demand for holding risk assets relative to government bonds – being at near [viii]historic lows of only 30bps, markets have been unwilling to purchase treasuries en masse. This has no doubt been exacerbated by the current Fiscal position in the US where significant deficits exist alongside exceptionally low levels of unemployment, which we believe to be an unsustainable aberration over the long term.

Given significant levels of indebtedness, large fiscal deficits and an apparent desire to reduce the scale of public sector balance sheets an important question is being asked by markets. Who, ultimately, is going to buy the bonds that DM governments so clearly need to issue? With the need for issuance to cover significant government spending over the coming years, in our view there have been growing fears that yields may have to move meaningfully higher for demand to meet supply. This could partly explain why investors’ appetite for bonds has been lacklustre despite their apparent attractiveness relative to riskier assets such as equities.

Whilst we have seen yields come down at the margin, we expect investors to be more sensitive to changes in fiscal policy and the resulting issuance as we move forward. The “Bond vigilantes” – a term famously coined by Economist Ed Yardeni to describe fiscal hawkishness by markets – are back!

How have central banks responded?

In a break from the new normal, central banks broadly left rates unchanged this month. Much of this is wanting to assess the impact of the rises we have seen over the past two years. However, the previously highlighted [ix]rise in bond yields will also have a meaningful impact in tightening financial conditions, doing a lot of work on behalf of the major central banks.

In what was largely seen as a sleepy month for policy makers, the Bank of Japan provided a point of interest. With the Japanese Yen trading below ¥150 to the dollar – the historic level at which the BoJ has intervened – many had speculated that we could see a shift in policy. [x]Given its influence on global bond markets this could have especially meaningful consequences, particularly if this drew significant levels of liquidity out of bond markets!






[i] https://www.bloomberg.com/news/articles/2022-10-17/forecast-for-us-recession-within-year-hits-100-in-blow-to-biden?leadSource=uverify%20wall

[ii] https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimate

[iii] https://www.bea.gov/data/income-saving/personal-saving-rate

[iv]  https://www.barrons.com/articles/alphabet-google-earnings-stock-price-4890483f?mod=md_stockoverview_news


[v] https://www.ft.com/content/839d42e1-53ce-4f24-8b22-342ab761c0e4


[vi] Absolute Strategy Research Investment Committee Briefing – October 2023

[vii]  Absolute Strategy Research Investment Committee Briefing – October 2023


[viii]   https://www.reuters.com/markets/rates-bonds/soaring-treasury-yields-threaten-long-term-performance-us-stocks-2023-10-26/


[ix]  https://www.reuters.com/markets/us/fed-poised-hold-rates-steady-despite-economys-bullish-tone-2023-11-01/


[x] John Authers – points of return 31/10/2023

Chart of the Week – The Widening Dispersion Between Big Tech and the Wider Tech Sector

by Tim Sharp, researched by Jack Williams


In the backdrop of this year’s notably narrow equity market performance, investors are meticulously scrutinising the latest earnings per share (EPS) estimates and revisions from analysts. This heightened vigilance stems from the increasing confluence of contradictory data, further exacerbating the intricacies of an already complex market backdrop. Even seasoned investors find themselves unsettled by these developments as underscored by the recent remarks of prominent investor and trader, Paul Tudor Jones. In a recent interview with CNBC, Jones said that the current geopolitical landscape presents an unprecedented and formidable challenge, characterizing it as potentially the most threatening and challenging environment he has ever encountered.

However, following a series of negative revisions earlier in the year, EPS estimates for Q3 2023 have remained relatively flat since august, holding steady into the print. The wider US market has fallen 4% over the same period.


Figure 1: Refinitv Data, Bloomberg, Barclays Research


When looking at revisions, there is a widening disparity between big cap technology stocks and the rest of the market. Big cap technology EPS has been revised up 15% YTD while the remainder of the US500 blue chip index showing downward revisions of -6% YTD. In a particularly confusing fashion, there is a vast difference between Big Tech EPS revisions and those seen in the wider tech sector, of which are expected to decline by -6% alike the US500 index.


Figure 2: EPS Revisions 2024, Barclays


This gap in outlook continues into 2023 where big cap tech earnings are expected to rise by 17% compared to -3% for the wider US500 index and -4% for the wider technology sector.

As shown in the chart below, dispersion of analyst forecasts remains high for big tech, but has converged for the rest of the US500.


Figure 3:EPS Revisions 2023, Barclays


Depicted in the chart below, you can see the dispersion of analyst forecasts over the past 18 months. A gap in dispersion emerged, albeit narrow, in H1 23’. This was caused by a convergence of macro uncertainties, combined with upwardly revised tech estimates leading to the AI/Tech fuelled rally which pushed indices higher as companies like Nvidia upgraded their outlook. The rest of the market did not enjoy such an uplift, instead seeing downward revisions. Although the wider technology sector enjoyed positive revisions till May of 2023, the sector (ex-big tech) has seen revisions since, leading to the widened gap shown below.


Figure 4:Dispersion of Analyst Forecasts (US500) Barclays



Chartbook, D. (2023). Daily Chartbook #303. [online] www.dailychartbook.com. Available at: https://www.dailychartbook.com/p/daily-chartbook-303

Squawk Box, C. (2023). CNBC Transcript: Tudor Investment Corporation Founder & CIO Paul Tudor Jones Speaks with CNBC’s ‘Squawk Box’ Today. [online] CNBC. Available at: https://www.cnbc.com/2023/10/10/cnbc-transcript-tudor-investment-corporation-founder-cio-paul-tudor-jones-speaks-with-cnbcs-squawk-box-today.html.

Research, B. (2023). Barclays Research – Food for Thought: A Convergence in Dispersion. [online] live.barcap.com. Available at: https://live.barcap.com/PRC/publication/CL_TEJ-IH4gfiB-IH4g_652824d5cc762f71f409aaee.

Research, B. (2023). Barclays US Equity Research – Food for Thought: A Divergence in Dispersion. [online] live.barcap.com. Available at: https://live.barcap.com/PRC/publication/CL_TEJ-IH4gfiB-IH4g_64b07d22a652195b94c79464.


September Investment Review: Pause for Thought

by Tim Sharp,

As the summer months draw to a close, and the cooler temperatures begin to set in, September saw the Fed pause, signalling that the sustained period of interest rate rises may also be approaching an end. Indeed, officials are hoping that policy is now ideally positioned to cool the sweltering inflation we have seen over the past 18 months, without strangling the economy.

Following the rapid rises in interest rates over the past two years, that has seen the FOMC hike 11 times and an incredible 14 consecutive rate increases from the Bank of England, this month potentially indicated a shift in central bank policy.

Looking at the Cleveland Fed’s inflation nowcast (an estimate of current inflation) suggests that core CPI in the US is running at 4.17% YoY[i]. Whilst this is certainly too high for comfort, it does represent a marked decrease from the highs of 9.1% reached in 2022. UK inflation remains a relative outlier in developed markets, with the latest CPI print at 6.3%.

If inflation is still a problem, why pause?

Whilst central banks have taken their foot off the gas…for now at least! We see the messaging as clear; the fight against inflation is far from over. Interest rate increases have a lagged effect, and it does take time to filter through to the broader economy. In our view, this along with greater uncertainty has convinced policy makers that pausing to assess the impact on the economy is the best course of action.

We feel that although rates are unlikely to rise much further from here, the overall tone of policymakers was hawkish. This was in large part due to greater emphasis that rates aren’t going to be coming down anytime soon. Given the continued resilience of the consumer – to the disbelief of many – and the ongoing inflationary risks, we think that central banks have been trying to persuade markets that rates will remain elevated for the foreseeable.

What does all this mean?

With regards to the current higher for longer narrative, we’re not entirely convinced. This will largely hinge on the ongoing strength of the economy. A central assumption being that economic growth will remain robust enough to justify the current rate environment. In our view central banks trying to regain their credibility after the rampant price increases of last year and aiming at all costs to stop higher inflation expectations becoming embedded.

We see signs that longer term expectations are shifting with longer dated government bond yields climbing and the yield curve beginning to steepen. The performance of treasuries over the month was a good example of this, with yields on the 10Y up 10% compared to only 4.1% for the 2Y. This in turn should further raise borrowing costs, tighten financial conditions, and ultimately help cool the burgeoning demand that has driven prices higher in our view.

This can also be seen in currency markets with the dollar continuing to strengthen. The Japanese yen notably continuing its weakness – down 2.35% over the month and 13.49% YTD – as the BoJ pursues a “golden opportunity to dispel the deflationary mindset”.[ii]

So, prices should start to come down?

A significant amount of progress has been made in bringing inflation back towards the two percent target, set by most central banks. However, we see two big ongoing risks that that will keep policy makers awake at night. Wages and energy costs! Meaningful inflation that persists over long periods – as was seen in the 70’s – has historically been driven by elevated wage growth, evolving into a vicious wage-price spiral.  The latest data show’s UK wage growth at 8.5%[iii], a figure that we expect will certainly concern the BoE.

Adding fuel to the fire, the ongoing efforts of OPEC to avoid a capitulation in the oil price have been taking effect. Over the past three months WTI crude oil prices are up over 30%. Where falling energy prices had been a detractor for much of the year, they are now a meaningful contributor.

Whilst a win in the battle against inflation, the most recent PMI figures will provide little consolation. September services PMI data for the UK came in at 47.2[iv] – a figure below 50 representing contraction – with similar figures seen around the Euro area. The US marginally managed to buck this trend, with the PMI’s coming in at 50.2, showing continued expansion.

How does this affect markets?

Looking more closely at markets, September has been a challenging month. Except for the UK, all major equity markets are down over the period. History tells us that rising rates are usually bad news for asset prices. As was seen in 2022, if markets are digesting higher rates over the longer term, then the future profits companies can return to us as shareholders, have a lower value when discounted back to the present.

This is notable when looking at the dispersion of returns over the month. The fast growing, tech heavy Nasdaq has been the worst performer in September – down 4.97% at the time of writing – this makes sense, given much of the value these companies will be able to return to shareholders is likely to be captured far in the future.

The painful performance has not solely been confined to technology with many other broader equity indices and geographies suffering. The S&P 500, DAX and Nikkei delivered -5.22%, -4.33% and -0.93% respectively.

In addition to this, as the return offered by lower risk assets becomes more attractive, investors may be incentivised to de-risk their portfolio’s, we believe this could provide a headwind to risk assets going forward.

This all sounds quite gloomy?

Storm clouds have been gathering on the horizon for some time now and given investors plenty of reason to be cautious. Our positioning has reflected this. However, we see much of the strong performance of markets this year having been driven by the enduring resilience of the economy. Indeed, the Fed more than doubled their 2023 GDP projections from 1% to 2.1%[v]. This is a stark contrast to the 100% percent probability of a US recession by October 2023 forecast by Bloomberg economics last year.[vi]

Markets are forward looking, and although sentiment has been improving, a lot of good news is reflected in prices. US valuations are high by historical standards. The CAPE Shiller PE – a cyclically adjusted ratio for the price multiple on earnings – currently stands at 29.5 for the S&P 500, compared to a historic average of 17.1[vii].

Conversely, in the UK where investor sentiment is particularly negative, we believe valuations are far more reasonable. Whilst the backdrop remains challenging globally, there continue to be companies that offer value. We are confident that attractive returns are available to long term investors through a disciplined and diversified approach.


References, research by Alex Hulkhory:

[i] https://www.ons.gov.uk/economy/inflationandpriceindices

[ii] https://www.boj.or.jp/en/mopo/mpmsche_minu/opinion_2023/opi230728.pdf

[iii] https://tradingeconomics.com/country-list/wage-growth?continent=g20

[iv] https://tradingeconomics.com/forecast/services-pmi

[v] https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf

[vi] https://www.bloomberg.com/news/articles/2022-10-17/forecast-for-us-recession-within-year-hits-100-in-blow-to-biden?leadSource=uverify%20wall

[vii] https://www.multpl.com/shiller-pe

September Strategy Meeting 2023 – Markets Priced for Perfection

Author: Tim Sharp

Researcher: Jack Williams

Published: September 22, 2023


Another month has passed in the markets, bringing a reversal of sorts with technology leading indices lower, mixed bags of data and an oil price pushing towards $100.

Inflation surprised to the downside, although any optimism was quickly sapped by Jerome Powell’s hawkish rhetoric at the Jackson Hole symposium increasing the odds of future rate hikes from the Fed despite the deflationary data incoming.

In Europe and the U.K inflation data has been more stubborn while both flash PMI’s and retail sales came in much weaker than expected. US manufacturing and services PMI’s also fell into contractionary territory, and we think this will inevitably have some impact on risk assets.

Substantial monetary tightening measures in developed nations may now be taking a toll on economic activity. So far, the key pillar supporting the notion of a robust consumer has been the accumulation of surplus savings resulting from the pandemic, stimulus measures, and reduced opportunities to spend discretionary income during quarantine. However recent data suggests these excess savings could be very close to being depleted.

Our cautious investment strategy has resulted in our abstention from participating in the AI driven rally that swept through the markets during the first half of the year. Nonetheless, we remain optimistic about the potential vindication of our quality-driven, defensive stock selection approach in the latter half of the year. This optimism is underpinned by the fact that valuations continue to remain elevated when compared to long-term historical averages. Moreover, there are ample reasons to maintain a cautious and sceptical stance as an investor in the current market environment.

The US has seen the use of fiscal policy, boosting onshoring through the CHIPS act and seeing an uptick in construction due to the IRA (Inflation Reduction Act), that may have underpinned growth in the shorter term while unemployment remains low, although recent moves in Treasury yields suggest there could be a turning of tides on the horizon.

With bond yields on the rise, this has provided a headwind for equities made worse by the deteriorating landscape in China for investors which earlier in the year was being looked to as the tide that could lift all boats.

Consumer confidence within China remains weak, the countries dismal reopening following extremely tight Covid policies, currently being further amplified by slowing economic momentum.

Many are of the view that policymakers will have to inject some form of stimulus into the economy to avoid a complete collapse in confidence as the nation toils with a spiralling property market, a reversal in globalisation and erosion of geopolitical relations.

We continue to keep a close eye on the deterioration of US/China relations, noting the recent push to increase the number of countries associated with the BRICS (Brazil, Russia, India, China and South Africa) trade group, along with the notable empty chair of the Chinese Premier at the G20 summit as it appears to be distancing itself from western developed nations.

As US influence wanes and developing nations continue to align themselves to alternative regimes and trade groups, the possibility of a dual centred global economy rises. We believe this would be a significant headwind for future global growth through the inefficient use of resources while also increasing uncertainty with regards to security and the obvious increase in geopolitical risks.

We believe the rally seen to date this year within equity markers has been supportive of our earnings trough thesis, with gains in this rally driven near completely by PE expansion rather than growth in earnings.

The question of whether bond yields have returned to mean or will fall in line with inflation and interest rate expectations may determine sector rotation amongst equity allocators. Recent rises in bond yields saw cyclicals come under pressure as risk appetite reduced, however should this reverse and yields back off from their 16-year highs sectors such as Technology, Healthcare and Food Retailers could enjoy a move to the forefront of investors attention.

Guidance from US companies has weakened notably, with margins falling back to non-recession lows and quality of cash flows deteriorating to a point where some are now reducing the size of their buybacks schemes with the worst affected sectors being Technology and Industrials. A recovery in buybacks will probably require an increase in profits growth which looks unlikely to us at present. Financing costs have soared, especially for small and medium sized companies, and debt levels across markets have risen, providing increased headwinds for a market that is priced for perfection. Interestingly buybacks in Japan continue to increase providing a tailwind to equity markets there and underlines our positive stance towards Japanese equities.

Andrew Bailey, Governor of the bank of England revealed rates in the U.K are probably near the top because a “marked” drop in inflation was likely as we move through the year. The surprise drop in August inflation data led to the Monetary Policy Committee voting to leave rates unchanged at its September meeting against market expectations.  The front end of the yield curve reacted positively bringing 2-year Gilt yields lower although the longer end remains cautious due to a rise in oil prices along with resilient earnings.

On a relative basis Gilts appear cheap compared to Bunds and US Treasuries, ASR (Absolute Strategy Research) note in an environment where growth slows, and inflation declines Gilts seem fairly priced given U.K fundamentals.

In our overarching investment strategy, we maintain a favourable stance toward a defensive asset allocation framework. This approach underscores our emphasis on high-quality defensive equities while adhering to a relatively conservative equity allocation in comparison to alternative assets and fixed income instruments. This strategy reflects our commitment to prudent risk management and capital preservation, aligning with our long-term investment objectives.



Absolute Strategy Research Investment Committee Briefing – August 2023

Chart of the Week: Transporters – Under Pressure

Author: Tim Sharp

Researcher: Jack Williams

Published: September 22, 2023


As the holiday season comes to a close and the out of office announcements begin to dissipate for the year, we dive into transportation as a sector, with particular attention to airlines and whether the recent stall in share prices is telling of greater problems further along their flight path.

The US500 Transportation index has enjoyed a monstrous climb since the turn of the year, rising by over 15% from the start of January to its peak around the end of July. Since, performance has reversed, declining 10.7% to current levels.

Figure 1 – US Transportation Index (Refinitv Data/Hottinger)


Demand for transportation services softened as both imports and exports fell within the US, further exacerbated by consumers continued prioritisation of services, experiences and entertainment and turning a blind eye to goods since the ending of the pandemic period.

Furthermore, this change in consumer behaviours has resulted in a US inventory correction made worse by the ongoing slowdown seen in countries like China and Germany.

Let’s also not forget the mass of cost increases being faced by transporters of goods such as fuel prices and employee wages, both of which have recently crept up further.

Transport industries July 31st – September 12th:

Passenger Airlines -13.5%
Air Freight + Logistics -12.9%
Rail Transport -9.4%
Cargo Ground Transport -3%

Figure 2-Transportation Industry Performance By Subsector (Yardeni Research Inc.)


The airline industry in particular had saw a huge rally in the start of the year, flying over 34% from January to the sectors peak on July 11th, since the industry has seen share prices slide, reducing that monstrous 34% gain to just 9.2% at the time of writing.

Figure 3 – NYSE Airline Index (Refinitiv Data)


Airlines, perhaps more than most in the sector are feeling the brunt of the cost increases, American Airlines warned on Wednesday of higher fuel and wage costs eating into Q3 profits the extent of cutting their Q3 earnings expectations by more than 60%, from 95 cents per share to a guidance of 20-30 cents.

Wage Pressures on Airline Industry Through Recent Contract Negotiations:

JetBlue 24 Month Contract +21.5% Wage Increase
Delta Air 36 Month Contract +34% Wage Increase
American Airlines 48 Month Contract +40% Wage Increase
Alaska Airlines 12 Month Contract +11.5% Wage Increase

Figure 4 – Wage Negotiations Across Airlines (Yardeni Research Inc.)


With Crude Oil on the rise, having risen from a low on the year of $71.26 to $93.23 at the time of writing, this is yet another reason for Airline Operators to worry, buoyed by Saudi production cuts, summer driving season in the US, a depleted US S.P.R (Strategic Petroleum Reserve) and an uptick in travel demand over the summer with many unable/unwilling to travel through the pandemic period.

Figure 5 – Crude Oil Spot Price (Refintiv Data)


As with many industries in this complex market backdrop, Airline operators are hoping for wage pressures to ease having paid out over inflationary level hikes in pay, and for OPEC members to increase production given the current global supply shortfall and willingness of other smaller nations to step up production to take advantage of heightened prices, but for this only time will tell.




Alabi, L.O. and Nilsson, P. (2023). British Airways and union agree 13% pay rise for 24,000 staff. Financial Times. [online] 4 Aug. Available at: https://www.ft.com/content/05ad4936-16ed-4c3f-a6fc-a3d1af7dec6d.

Gunnion, S. (2023). Airline stocks lose altitude as American Airlines and Spirit cut 3Q guidance on rising fuel prices. [online] Proactiveinvestors NA. Available at: https://www.proactiveinvestors.com/companies/news/1026412/airline-stocks-lose-altitude-as-american-airlines-and-spirit-cut-3q-guidance-on-rising-fuel-prices-1026412.html.

Paraskova , T. (2023). IEA: OPEC+ Production Cuts To Send Oil Prices And Volatility Surging. [online] OilPrice.com. Available at: https://oilprice.com/Energy/Energy-General/IEA-OPEC-Production-Cuts-To-Send-Oil-Prices-And-Volatility-Surging.html.

Roa, N. (2023). Stratus Financial Blog – JetBlue Pilots Agree to Contract Extension. [online] Stratus Financial. Available at: https://stratus.finance/jetblue-pilots-agree-to-contract-extension/#:~:text=JetBlue%20Airways%20pilots%20have%20agreed,slow%20progress%20in%20labor%20deals.

Yardeni, E. (2023). Transports Flying into Headwinds. [online] https://www.yardeni.com/premiumdata/mb_230914.pdf?utm_campaign=Morning%20Briefing&utm_medium=email&_hsmi=274192225&_hsenc=p2ANqtz—qK8nPbDkFtC8uCjwUTvHJxdGUhzXE7rVmLxZDC1ge73jInYuFGv4PQYRBjJPRnal53ocIrLeixupPHIn3awKhp89noEH1mJalsaKDeem46NR2zw&utm_content=274192225&utm_source=hs_email

August Investment Review: Jackson Hole takes Centre Stage

by Haith Nori


August was a rather volatile month this year for global markets. The Bank of England continued to increase interest rates. US Federal Reserve Chair Jerome Powell made his speech at the annual Jackson Hole Symposium, reiterating his approach to fighting inflation and the need to endure on the path of increasing interest rates until the 2% inflation target is reached. US debt has been downgraded by Fitch Ratings from AAA to AA+. The Bank of Japan has signalled an end to negative interest rates at the start of next year. Nvidia Corp continues to increase in share price and CEO Jensen Huang comments on the latest partnership with Google. Economists are continuing to downgrade their views on growth projections for China, worsening the outlook for China.

On 2nd August, Fitch Ratings, one of the three big American credit rating agencies, made the decision to downgrade the US debt rating ’from the highest AAA rating to AA+, citing “steady deterioration in standards of governance.”’ [i] The downgrade was a result of US lawmakers taking their time and negotiating continuously until the final deadline with the issue of the debt ceiling, having placed them on a ratings watch since the start of May when governance worries began. The rating change highlights a slightly higher expectation of default risk from the lowest possible level, albeit still implying a very remote probability.

Following the rate hikes in July by both the US Federal Reserve and the European Central Bank, the Bank of England started off the month (3rd August) by hiking interest rates in the UK by 0.25% to 5.25%. This was their 14th hike in a row and leaves interest rates at 15 year highs, with the Bank of England stating that ‘high inflation meant it was unlikely to stop rates any time soon’[ii]. Sterling continued to depreciate after the release of the news, remaining at a lower level for the rest of August. Like Sterling, UK equities also took a negative fall after the release of the news and continued to fall before regaining some of the lost value in the last week of August. Between April to June this year basic wages in the UK rose at their fastest rate of 7.8% which, whilst promising for the general public, also boosts the chances of the Bank of England continuing to increase interest rates. The next meeting for the European Central Bank, US Federal Reserve and the Bank of England will be in mid-September.

On 10th August US CPI data was released for the 12 months ending in July of 3.2% slightly higher than the June data of 3.0%. Whilst this is a slight disappointment US data is still the closest to the 2% inflation target. On Wednesday 16th August UK CPI data was released for the 12 months ending in July of 6.8%, down from 7.9% in June, exactly as predicted by analysts. In the Eurozone CPI figures were 5.3% for the 12 months ending in July, down from 5.5% in June. Whilst these figures have been promising all round, Central Banks have stressed the need for interest rates to remain high until inflation is under control. This was the key takeaway to come from Jackson Hole, which took place between 24-26th August. US Federal Reserve Chair Jerome Powell ‘once again reinforced the “higher for longer” mantra’[iii] in terms of his approach to interest rates and stressed that the committee remain determined to reach the 2% inflation target and are unwilling to stop until the job is done.

The Bank of Japan’s board member Naoki Tamura stated in a speech to Japan’s business leaders, that Japan’s inflation is in clear view of their target and has been ‘signalling the chance of an end to negative interest rates early next year.’ [iv] The comments have been the most compelling as an indication that the Bank of Japan will take action to phase out its unique approach to ultra-low interest rates. Along with the other developed market central banks, the Bank of Japan has a 2% inflation target. Tamura suggests that timing will be important and any such change will be dependent on the conditions of the economy falling into place.

Nvidia Corp, the best performing stock in the S&P 500, currently up 234% since the start of the year, on 31st August was blocked from selling its A100 and H100 chips to certain areas in the Middle East. This follows an announcement from US President Joe Biden expanding the initial restrictions that were placed on selling to China. Clarification on which specific countries in the Middle East the restrictions have been extended to has not yet been announced. Nvidia stock has continued to increase in share price over the month and the chipmaker has announced (29th August) a partnership with Google to increase the distribution of its artificial intelligence (AI) technology. This will allow google customers access to the technology that is created by the H100 GPUs. Nvidia CEO Jensen Huang stated “Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software and services that supercharge energy efficiency and reduce costs”. [v]

Overall, August has been volatile in terms of performance within asset classes. Brent Crude, after the gains made during July remained relatively flat during August. The UK 2-year, 10year Gilt yields and US 10 year Treasury yield have all returned to levels seen at the start of the month following initial increases in yields during August. Sterling continued to depreciate against the US Dollar and Gold also returned to a similar level at the start of the month.

[i] https://edition.cnn.com/2023/08/01/business/fitch-downgrade-us-debt/index.html

[ii] https://www.reuters.com/world/uk/view-bank-england-raises-rates-14th-time-2023-08-03/

[iii] https://www.reuters.com/markets/us/global-markets-view-usa-pix-2023-08-28/

[iv] https://www.reuters.com/markets/asia/boj-policymaker-signals-chance-policy-tweak-early-next-year-2023-08-30/

[v] https://www.cnbc.com/2023/08/29/nvidias-stock-closes-at-record-after-google-ai-partnership.html


Chart of the Week: The China Syndrome

Author: Tim Sharp

Researcher: Jack Williams

Published: August 25, 2023


Economic woes in China are proving to be worse than initially feared. As we entered the year, many investors were optimistic, expecting to see the economy boom as the country relaxed its Zero Covid lockdowns and rules. As disappointment shrouded the region’s markets, China bulls became expectant, hoping dismal data would force the hands of government officials towards the stimulus lever, which on numerous occasions over the past couple of decades has resulted in an uplift in not just China GDP, but global growth as well.

Figure 1 – CNY/USD (Bloomberg Data/Bloomberg.com)


But how far will the CCP (Chinese Communist Party) have to go to create a meaningful impact, especially since the PBOC (Peoples bank of China) cut rates last Tuesday by 15bps, a move swiftly shrugged off by most. Over the past month or so, we have seen Central Banks such as Peru and Brazil cut rates, each of which were met by a positive response in the markets (although these rate cuts were widely expected).

Prior to the event, 93% of Bloomberg economists surveyed said they did not expect any change in the PBOC bank rate, with just a single economist expecting a cut. The country is currently grappling with a worsening property sector, weak consumer confidence and spending along with mortifying economic data, all of which this latest policy shift has not provided any respite to.

As shown above, China’s biggest bruise is the one on its currency. The Yuan now sits at a similar level to before covid restrictions began to lift and close to a 14-year low marked in 2007 prior to the Lehman collapse. In the last 24 hours, China’s central bank has asked domestic lenders to scale back outward bond investment aimed at limiting the supply of Yuan offshore, its latest attempt to shore up the currency.

Furthermore, the main metrics of economic activity in the region are all flashing red with industrial production, property investment, and retail sales all at their lowest levels since turn of the millennium.

Shown below is a range of metrics (Industrial Production, Property Investment, Fixed Asset Investment such as infrastructure and Retail Sales) shown via a 6-month moving average.


Figure 2-6M Moving Average of YoY Growth Metrics (Bloomberg Data/Bloomberg.com)


All these metrics are at, or near two-decade lows, with property investment falling off a cliff, industrial production readings falling short of expectations and retail sales plummeting at a gradient that would surely be a black run if found on a ski resort. Only fixed income investment is off its lows, but in recent months even this metric has begun falling again.

The PBOC cut rates on its medium-term lending facility last week by 15 bps to 2.5%, marking its second cut since June and the highest cut since 2020. Immediately following the cut, reactions suggested little excitement was generated from investors with any gains on indices being quickly absorbed as investors digested the surprise move.

The Hang Seng Index is down 9.6% from the start of the year, down 6.3% on the month and flat on the week. It Is clear further stimulus would be needed to raise China’s economy, but Xi Jinping has of yet resisted plans for further additions of stimulus into the economy particularly around the property sector, of which numerous red flags are re-emerging.

Figure 4-PBOC 1Y Loan Rates (PBOC/Bloomberg)

Figure 3-Hang Seng Index (Refinitiv Data)

While the property sector continues to give flashbacks to the Evergrande calamity in the back end of 2021. In recent weeks developers such as Country Garden have missed coupon payments on their USD based bonds. Over the past two years calamities within the property sector have wiped out a whopping $87 billion dollars from the industry.

At the time of writing China announces plans to cut stamp duty on domestic stock trading by as much as 50% in a bid to rescue their equity markets. Whether this will work, only time will tell, although it does feel lacklustre compared to the number of issues the region faces.

Earnings within China have been mixed as of late, although tech behemoths such as Apple, Bite Dance (Private Co.), Alibaba, Tencent and to some extent JD.com all reported improvements in China based sales while Shanghai Disneyland saw record high revenue, operating income and margins through the quarter, narrative echoed by Universal Studios Beijing which enjoyed its most profitable quarter since opening.

This paints a picture of bifurcation amidst China’s economy, with huge swathes struggling, whilst others seemingly enjoy similar trends such as increased prioritisation of experiences and entertainment which we have seen since earlier reopening following the pandemic in developed markets. Looking forward it will be vital for China to capitalise on those parts of the economy doing well (Leisure, Entertainment, Food, Technology) whilst introducing confidence back into markets and consumers to address these severe areas of weakness alike property and general retail.


Cheng, E. (2023). What China’s big earnings say about the consumer. [online] CNBC. Available at: https://www.cnbc.com/2023/08/18/what-chinas-big-earnings-say-about-the-consumer.html

Liu, P. (2023). Country Garden Leaves Investors in Dark on Exact Default Deadline. Bloomberg.com. [online] 22 Aug. Available at: https://www.bloomberg.com/news/articles/2023-08-22/country-garden-default-deadline-becomes-guesswork-for-creditors.

Trading Economics (2019). China Loan Prime Rate. [online] Tradingeconomics.com. Available at: https://tradingeconomics.com/china/interest-rate.

Hancock, T. (2023). China’s Consumer Sentiment Starting to Improve, Surveys Show. Bloomberg.com. [online] 24 Aug. Available at: https://www.bloomberg.com/news/articles/2023-08-24/china-s-consumer-sentiment-starting-to-improve-surveys-show.https://www.theguardian.com/business/2023/aug/23/china-economic-model-property-crisis

News, B. (2023). How China’s Faltering Growth Threatens to Derail Commodities Markets. Bloomberg.com. [online] 22 Aug. Available at: https://www.bloomberg.com/news/articles/2023-08-22/how-china-s-faltering-economic-growth-threatens-to-derail-commodities-markets.

Lehner, U.C. (2023). Debating the size of China’s economic rough patch. [online] Asia Times. Available at: https://asiatimes.com/2023/08/debating-the-size-of-chinas-economic-rough-patch/.

August Strategy Meeting 2023 – Inflation’s Grip is Loosening

Author: Tim Sharp

Researcher: Jack Williams

Published: August 24, 2023

It has been an eventful month with markets, surprising the bears once again.

Asia ex-Japan was the best performing region, the Hang Seng rose 6.1% during this period as market participants overlook weak factory and services data, choosing instead to concentrate on Beijing’s latest measures to stimulate consumption and kickstart what has so far been a lacklustre covid recovery.

We remain somewhat sceptical of China as an investable market with geopolitical tensions, slowing growth (albeit still at a higher rate than the majority of nations) and the commercial property downturn continuing.

As of writing this publication, stories of Country Garden (2007.HK) another real estate behemoth in China missing interest payments and scrapping plans to inject cash into the business emerge, sparking renewed fears of a smaller scale Evergrande calamity or economic downturn in the region as the government struggles to regain confidence.

As a team we are very intrigued by the landscape of LATAM equities currently as we seek to benefit from the downturn in rates and a potential rotation back into equities following a period of elevated rates in the region.  The Brazilian Bovespa index gained 3.3% in July following the BCB’s first rate cut of 50bps, Chile too cut rates the week before with their central bank moving to cut by 100bps and minutes from their July meeting suggesting another 75-100bps could be cut in August.

Global fixed income was flat to marginally weak with credit and emerging market bond index spreads falling slightly more, in line with a risk on environment. Listed infrastructure and real estate recovered 4% during the month, although this was mixed at a subsector level and could well be perceived as bargain hunting at these discounted levels. At the time of writing news is emerging of Buffet moving Berkshire into the housebuilding sector, accumulating stakes worth over $814mm in three US names, Dr Horton (6mn Shares), Lennar (152,572 Shares) and NVR (11,112 Shares).

To our relief, and somewhat in-line with our own expectations, the vice-like grip of inflation eased across markets with EU, UK and US readings all surprising to the downside, U.K headline reached 7.9% while core hit 6.9%.

While still extremely data dependant, it is encouraging to see inflation heading in the right direction and adds weight to the argument that within developed markets we could be close to terminal rates and a pause by central banks (excluding Japan) is likely from here while they seek to assess the stickiness of their remaining inflation. Until recently the soft-landing argument was sneered at by many market participants, however this is now being priced as the most likely outcome.

The BoJ continues to run very loose monetary policy stimulating inflation, although this has been favourable for Japanese equity markets with investors looking for value and positive earnings momentum. We continue to find ourselves attracted to Japanese equities due to the favourable mix found within markets. Japan offers attractive valuations on companies engaged in some of the most pioneering industries to which globally we could be at the inflection point of mass adoption, think Robotics, Technology, AI, Automation, Japan has had a foot in this camp for many years now and this could well be a very interesting period for the region. We see the opportunity mix alongside valuations as a big reason for the Nikkei making 33-year highs back in May.

While the committee kept S.A.A unchanged we took this moment to re-visit some of our inflation beneficiaries including an overview of the  food retail sector. We reviewed the razor-sharp margin nature of the businesses, increased governmental and societal pressure for lower food prices and valuation extensions on equities within the space to P/E’s in excess of 30x. . Falling inflation and persistently tight labour markets also present a significant challenge for these businesses. In summary we see better value and opportunity elsewhere in areas such as UK Pharma.

We have also noticed a growing concern amongst market participants and economists that the ECB could be drastically close to a policy misstep. Many believe the economic picture within the Eurozone economy is not as rosy as it is currently being painted by the central bank, combine this with their aggressive tightening regime and could yield a hefty blow to businesses, individuals and equity markets within the region.

A.S.R (Absolute Strategy Research) undertook a comparison of the global financial crisis and the economy post pandemic; it would seem several of the mistakes witnessed amidst the GFC have not been repeated. Post GFC compared to post pandemic saw a major difference, whereas stimulus in the GFC was removed to be replaced by years of austerity leading household incomes and assets to shrink, following the pandemic fiscal stimulus has remained looser for longer replacing what was a long-term deflationary threat with this new inflationary environment.  ASR expect a slower pace rate of cuts than expected, weaker growth and higher for longer interest rates which could spell volatility for investors given current market expectations.

ASR see the current forecast of rates falling while the economy slows as overly optimistic, siding with central bankers. We see the yield curve inversion being solved by principally falling short term rates. Long dated bonds are also pricing in continued falling inflation, however, if inflation surprises by staying higher for longer (it wouldn’t be the first time sticky inflation has caught investors off guard) then there could be a case to be made for long term yields to remain elevated over a longer term, meaning the unwinding of the curves inversion may unfold in a different manner to that of the general consensus. Long term yields are also likely to remain elevated in the presence of high budget deficits which will require funding through an increase in the issuance of coupon securities.

Advancements in technology along with a strong consumer are two clear reasons the market has performed well this year, however as a team we question the underlying statistics leading many to this outcome. The excess savings figure we see as highly subjective and continue to advocate for the study of credit flows to assess strengths and weaknesses within consumer behaviours.

Despite strong returns year to date, earnings on a forward basis are flat, leaving P/E ratios vulnerable. ASR believe any significant upside in the SPX from these current levels would need EPS growth in excess of 15% or forward P/E’s of 20X, which would see equity indices looking stretched to say the least. Now investors can achieve 5.5% on 3-month cash rates and the trailing earnings yield of the SPX is at 4.16%, we question whether investors are being fairly compensated for the any risk taken when risk free options seem so attractive in these times. When compared to bonds ASR state Global Equity Risk Premium is the lowest since 2007 and US ERP is at a 19-year low. Even with the optimism being created by investors, equities look expensive on a relative basis and are generally priced for perfection in our view. This creates an awkward dilemma for any companies trading on elevated multiples that cannot live up to the image valuations have painted. Any disappointments in earnings or guidance would likely be met with a fierce market reaction.

In aggregate we remain underweight equities, overweight short-dated fixed income and overweight alternative strategies.

Chart of the Week: Keeping Up with The Corporations – A Disappointing Earnings Season for Beats and Misses

Author: Tim Sharp

Researcher: Jack Williams

Published: August 9, 2023

In the past, companies were often rewarded for meeting or exceeding analyst projections, and investors would respond positively to earnings reports. However, recent earnings periods have been far from the norm, characterized by exacerbated moves in both the up and downside as shifts in market themes and uncertain macro backdrops collide, leading to increased volatility. This is particularly evident in the current earnings season, where companies missing expectations or issuing lacklustre guidance are being heavily punished by the market.

Earnings Reactions:

The chart in Figure 1 illustrates the stark contrast between companies beating estimates and underachievers in the market. The average one-day percentage change as a reaction to earnings over the last ten years has been negligible at -0.01%. However, in the current earnings season, this figure has dropped to -0.8%, indicating a significant difference from the historical average.

Figure 1 – Reactions (% Change) on Earnings Day vs L10y Avrg
Source: Bespoke Investment Group

Moreover, the average reaction to Earnings-Per-Share beats in the past was a positive 1.58%, leading to an increase in share prices. In contrast, the current earnings season has shown an average reaction of only +0.27%, considerably lower than the historical average. Companies missing EPS revisions also saw slightly worse reactions this earnings season, with an average drop of -3.54%, compared to -3.35% over the last ten years. Companies meeting expectations are also experiencing more negative reactions, with an average decline of -2.89%, reflecting investors’ preference for outperforming businesses amidst the current uncertain macro environment.

Real Estate has struggled due to a weak macro backdrop for housing, even for those companies beating EPS, with an average decline of -0.45%. Technology also faced challenges as heightened expectations during earnings season, driven by the tech/AI-led rally in US stocks, pushed valuations to previously high pandemic territory once again. This resulted in an average reaction of -0.79% to a positive EPS beat within the sector. Communication Services also struggled in this earnings season, affected by weaker business sentiment, lower consumer confidence, and market stories such as lead cable contamination, which led to shares, such as AT&T, hitting 30-year lows.

Short Interest Effect:

Figure 2 – Russell 3000 Earnings Reactions By Short Interest Group
Source: Goldman Sachs

Data from Russell 3000 earnings suggests that short interest may be playing a significant role in earnings reactions. Stocks with short interest as a percentage of free float at over 7.5% posted earnings day returns of at least 1.5% on average, with 7.5%-10% being the sweet spot, producing +1.6% returns on earnings day compared to negative average returns for stocks with less than 7.5% short interest as a percentage of free float.


The recent earnings season has been marked by increased volatility, with companies facing heightened scrutiny for their performances. Market themes and macroeconomic uncertainties have played a significant role in shaping investors’ reactions to earnings reports. Sector-specific challenges have also impacted reactions, with the Real Estate, Technology, and Communication Services sectors facing difficulties.

While this can be confusing and perhaps points to potential weakness around future earnings periods during times of uncertainty and macro inconsistence, this may not be the case. As nerves reemerge following a monster rally in the US year to date and the first 1% drop in the US Blue Chip Index in over two months, data from similar situations points the opposite direction as the typical outcome.

The chart below shows US500 performance after the first 1% drop in more than two months, which on average yields investor returns of 14.8% one year later. Obviously, nothing is guaranteed, but as the old saying goes, history tends to repeat itself, which I’m sure in this case, should it happen, would be warmly welcomed by many investors.

Figure 3-SPX Performance after first 1% Decline After More Than Two Months Without One
Source:Carson Investment Research


Investment Group, B. (n.d.). Bespoke Daily 📊 – No Love for Beats. [online] us11.campaign-archive.com. Available at: https://mailchi.mp/bespokepremium/bespokes-morning-lineup-553274?e=33d57ea167.

Detrick, R. (2023). Volatility Is The Toll We Pay. [online] Carson Group. Available at: https://www.carsongroup.com/insights/blog/volatility-is-the-toll-we-pay/

Anon, (n.d.). S&P 500 Stocks – Average Earnings Day Moves – ISABELNET. [online] Available at: https://www.isabelnet.com/sp-500-stocks-average-earnings-day-moves/

The Market Ear. (2023). The Market Ear | Live news, analysis and commentary on what moves markets and trading. [online] Available at: https://themarketear.com/newsfeed

THE SHORT AND LONG OF RECENT VOLATILITY. (n.d.). Available at: https://www.goldmansachs.com/intelligence/pages/gs-research/the-short-and-long-of-recent-volatility-f/report.pdf

July Investment Review: Possibility of a soft landing?

by Haith Nori


July saw global markets deliver positive returns. The encouraging news of inflation reducing in the US, Eurozone and the UK has rippled through global equity markets leaving a progressive outcome. Despite the good news, Central Banks have continued to increase interest rates, factoring the latest data into their plans, with the exception being the Bank of Japan who have maintained their stance on ultra-low interest rates. Half-way through the year, second quarter earnings have so far been encouraging and fears of a recession are slowly fading with the idea of a soft landing seeming to be more plausible. Ukraine has, for the time being, not been allowed to join NATO while the war is still active. The trade war between the US and China is levelling up once more and Russia has pulled out of the UN Grain Deal brokered by Turkey last year in retaliation to what they believed to be an attack from Ukraine.

At the beginning of July, China announced that from August they would impose export restrictions on gallium and geranium to US, which are crucial elements for semiconductors and computer chips used in electric vehicles and military equipment. The news came just before Independence Day. China’s decision was ‘widely seen as retaliation for U.S. curbs on sales of technologies to China’[i].  The US announced that they would stop sales to China of high-tech micro-chips in July, as they feel these should not be used by Chinese Military. The retaliation from China could be the beginning of increased tensions between the two countries. Janet Yellen, US Secretary of the Treasury, travelled to China to meet with Premier Li Qiang, in an attempt to repair economic relations between the two countries, stating China had unfair economic practices but China wanted her to meet them in the middle with the development of trade ties. However, whilst Yellen achieved some success talking with some of China’s main economic policymakers, no trade, investment or technology matters have been agreed.

Russia pulled out of UN Grain deal brokered last year by Turkey called “The Black Sea Grain Deal” set up last year after blasts to the Russian bridge connecting to the occupied Crimean Peninsula by what Russia thought to be Ukrainian Seaborn drones. Their decision ‘raised concern primarily in Africa and Asia of rising food prices and hunger’[ii]. Russia has retaliated by targeting grain infrastructure striking the Ukraine grain port of Odesa.

A NATO summit was held in Vilnius, Lithuania on 11-12th July where the idea of Ukraine joining the NATO was raised. Whilst the thirty-one members of NATO are supportive of Ukraine being part of the alliance, the US has posed strong opinions that they will not ‘let a warring country into NATO and give too firm a timeline commitment’[iii]. It was indicated that Ukraine would be able to join NATO once the war was over. The leaders of NATO have also declared that the future of Ukraine laid in the hands of NATO’s military relationship. Neither Zelenskyy nor Putin were happy with the outcome.

On 12th July US CPI data was released for the 12 months ending in June of 3% beating expectations of 3.1%. This has come a long way since its level of 9.1% in June 2022! On Wednesday 19th June UK CPI data was released for the 12 months ending in June was 7.9%, beating expectations of 8.2% and marking a steady reduction. The positive news gave a boost to UK Equities, with housebuilders benefiting the most as market participants believe that upward pressures on interest rates (and thus mortgages) could be abating. In the Eurozone CPI figures were 5.5% for the 12 months ending in June, down from 6.1% in May. Whilst these figures have been promising, Central Banks are still attempting to control inflation.

On 26th July the US Federal Reserve made the decision to hike interest rates by 0.25% (as expected) to 5.25%-5.50%, the eleventh time in the last 12 meetings. The last time the Federal Reserve had raised rates this high was in 2007 when there was a housing market crash. Jerome Powell has suggested that this is perhaps not the end and will review if rates are to be raised again in September stating ‘We’ll be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year’[iv]. Powell still believes there is a pathway towards a soft landing, which is where inflation falls without a recession being caused as a result. On 27th July the European Central Bank continued their path by increasing interest rates by 0.25% to 3.75%, this being the ninth consecutive hike in a row and has taken them to twenty-three-year highs.

On 28th July the Bank of Japan’s Governor Kazuo Ueda decided not to change their ultra-low interest rate policy, maintaining overnight interest rates at -0.1%. He also made the choice to marginally loosen their yield curve control (YCC) by buying 10-year Japanese Government Bonds at a rate of 1.0% in fixed-rate operations, rather than the previous 0.5% rate, shocking markets. By promising more flexibility in the YCC, this is their method for controlling long-term interest rates as ‘This effectively expands its tolerance by a further 50 basis points, signalling the BOJ would let the 10-year yield rise to as much as 1.0%.’ [v] The next meeting for the Bank of England will be at the beginning of August where markets are expecting a 25 basis point hike.

Overall, July saw a positive performance across asset classes. Brent Crude, after starting the month at levels of c.$74 per barrel, increased to over c.85 during the month. UK 2year Gilts have reached a yield of over 5%, with the 10-year yield reaching highs of c.4.65% and US 10-year Treasury note c.4.048%. During July Sterling continued to hit its highest levels over this past year, reaching over c.1.31 against the US Dollar. Gold also regained some of its lost value in June.

[i] https://www.reuters.com/markets/commodities/chinas-rare-earths-dominance-focus-after-mineral-export-curbs-2023-07-05/

[ii] https://www.reuters.com/world/europe/russia-carries-out-air-strikes-second-night-ukraines-odesa-port-governor-2023-07-18/

[iii] https://www.cnbc.com/2023/07/14/zelenskyy-absurd-comment-how-nato-pressured-ukraine-to-show-more-gratitude.html

[iv] https://www.reuters.com/markets/rates-bonds/fed-poised-hike-rates-markets-anticipate-inflation-endgame-2023-07-26/

[v] https://www.cnbc.com/2023/07/31/strategist-boj-should-move-to-new-normal-sooner-current-policy-is-very-harmful.html


Chart of the Week – Latin American Equities

Primed for a New Bull Market After Breaking 15+Year Trendline?

Author: Tim Sharp

Researcher: Jack Williams

Published: July 28, 2023

Developed economies have recently surprised on the upside following a long streak of losses causing Latin America to fall off the radar for many investors. However, these markets may be at a pivotal point and could be headed for brighter days ahead. The MSCI Emerging Markets Latin America ETF chart above depicts a sustained fall in price since its peak in 2008, declining from over $5200. Each candlestick in the chart represents one month’s worth of price action.

Figure 1-MSCI EM Latin America ETF Monthly Candles

The blue trendline illustrates the “slow puncture” effect witnessed in these markets over the past 15+ years, as capital gradually withdraws from the region. We believe Latin American Equities may be at a significant turning point, as future catalysts, current conditions, and our global outlook aligns, creating what some investors may describe as the perfect storm for Latin America. This month, bulls have broken through the long-term negative trend, turning heads investors heads as the case for LatAM builds.

In this article, we delve into a few interesting reasons why particular attention is being paid to this region as of late.

Figure 2-MSCI EM LatAM ETF Daily Candles 2008-Current


Inflation is a critical factor that cannot be ignored. Latin American countries have more experience in dealing with high and sticky inflation compared to most developed markets in recent history, having tackled numerous bouts of high level inflation. Learning from past experiences, central banks in the region took proactive measures to counteract its effects, aggressively hiking rates at a rapid pace. Brazil’s base rate rose from 2% in 2020 to the current level of 13.75%, which has been maintained for the seventh consecutive meeting (June 2023).

Figure 3-Caption: EM Inflation – Headline inflation has been easing, monetary policy has tightened. (Schroders, Refinitiv Datastream Data to May 2023).
Figure 3-Caption: EM Inflation – Headline inflation has been easing, monetary policy has tightened. (Schroders, Refinitiv Datastream Data to May 2023).

The chart above illustrates the easing of headline inflation while monetary policy has tightened across emerging market nations. The dark blue bar represents the current level of inflation, with the green dot showing peak inflation over the past 12 months. The cyan-coloured dash indicates the current level of monetary policy (e.g., Brazil at 13.75%), while the red triangle represents the target level of inflation. Additionally, a purple line shows monetary policy twelve months ago, revealing a push upwards and rapid decline in inflation well below peak levels for LatAM nations and in a much better place to cut rates sooner than most developed markets. At the current time of writing, Chile is expected to cut rates by 75bps following a 9 month hold at a rate of 11.25%, other nations are expected to follow suit in the coming months.

Figure 4-Brazil Central Bank Rate (TradingEconomics Data)
Figure 4-Brazil Central Bank Rate (TradingEconomics Data)

The US Dollar has shown notable weakness in recent months, as depicted in the sterling USD pairing chart below, showing that since October’s mini-budget debacle, sterling has outpaced the greenback.

Figure 5-GBP/USD
Figure 5-GBP/USD

A similar story can be observed when looking at Latin American currencies, such as the Brazilian Real, charted against the MSCI Latin America Index. The USD/Real chart shows that as the USD peaked, the Brazilian Real’s strength took over, leading to an upward march in the MSCI Latin America Index.

Figure 6-USD/REAL (White) MSCI LATAM ETF (Blue) Rebased to Par.
Figure 6-USD/REAL (White) MSCI LATAM ETF (Blue) Rebased to Par.


Onshoring or reshoring is a relatively new concept that has gained traction due to global tensions. It involves moving key components, materials, manufacturing hubs, and business infrastructure closer to home for businesses. The move towards onshoring has been driven by growing tensions with manufacturing nations like China, as well as uncertainties about Taiwan, further exacerbated by the COVID supply chain disruptions and the Russia-Ukraine war.

Countries like Mexico are poised to be major beneficiaries of this onshoring trend, potentially leading to increased GDP growth. Developments of factories, infrastructure, and higher-paying jobs may follow as states look to secure supply and manufacturing of crucial industries, such as semiconductors, closer to home.

In conclusion, Latin American equities appear to be at a turning point, with favourable conditions and global trends aligning in their favour. The region’s experience in managing inflation, the weakening US Dollar, and the added element of onshoring could potentially contribute to brighter horizons ahead for Latin American Equities



Benedito, L.M. and Burin, G. (2023). Brazil central bank to keep rates steady on June 21, cuts coming soon. Reuters. [online] 16 Jun. Available at: https://www.reuters.com/markets/rates-bonds/brazil-cbank-keep-rates-steady-june-21-cuts-coming-soon-2023-06-16/

Uddin, R. and McDougall, M. (2023). Latin America’s bonds and currencies lure yield-hungry investors. Financial Times. [online] 6 Jul. Available at: https://www.ft.com/content/c04c3a04-8c36-4822-813b-28f25e2ba067

Uddin, R. and McDougall, M. (2023). Latin America’s bonds and currencies lure yield-hungry investors. Financial Times. [online] 6 Jul. Available at: https://www.ft.com/content/c04c3a04-8c36-4822-813b-28f25e2ba067.

Cambero, F. (2023). Chile to start rate cuts, signaling more across the region. Reuters. [online] 27 Jul. Available at: https://www.reuters.com/markets/rates-bonds/chile-start-rate-cuts-signaling-more-across-region-2023-07-27/

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June Investment Review: Federal Reserve takes a pause

by Haith Nori

June saw global markets deliver mixed performances, albeit generally reacting positively to the US Debt ceiling issue being resolved at the end of May. A key aspect during this month has been central banks taking their next steps to control inflation. Japanese equities have reached their highest point since August 1990, up c.29% since the start of 2023 with Warren Buffet spotting value in the country and increasing the size of his existing positions in several of Japan’s largest firms. Back in the US, Apple has now reached a market capitalisation of over $3 trillion for the first time ever, assisting with the continued technology rally since the beginning of the year.

On 13th June US CPI data was released for the 12 months ending in May of 4%, 0.9% lower than that of April, still on the downward trend since June 2022 (9.1%). US. Federal Reserve Chair Jerome Powell is still fixated on achieving a 2% inflation target. On 16th June Eurozone CPI data was released for the 12 months ending in May of 6.1%, a reduction from April’s 7.0%. On 21st June UK CPI data was released for the 12 months ending in May remained at 8.7%, unchanged from April, missing expectations of 8.4%.

On 14th June the US Federal Reserve made the decision to keep interest rates unchanged at 5.00%-5.25% following ten consecutive meeting hikes. Global markets reacted positively to the news with many participants believing a pause was a sensible idea given the huge increase in base rates over the past year. On 15th June the European Central Bank also continued on its path, increasing interest rates by 0.25% to 3.5% (this being their eighth straight hike in a row). ECB president Christine Lagarde suggests further hikes are likely in July’s meeting. This is the highest level of interest rates in 22 years for the European Central Bank. Following suit, on 22nd June the Bank of England also made the decision to increase interest rates by 0.5% to 5% from 4.5% being the 13th time in a row that the Bank of England has increased interest rates. This was higher than the expected rise of 0.25% and is the largest rate increase since February. The Bank of Japan kept their ultra-low interest rates unchanged. At the European Central Bank Forum on Central Banking in Sintra, Portugal (26th-28th June), policy makers were keen to stress that market participants should not anticipate any interest rate cuts for at least a period of one to two years.

US Secretary of State Antony Blinken made the long-awaited trip to China on 19th June to meet with President Xi Jinping in Beijing’s Great Hall of People (which is usually reserved for meetings with heads of state). The purpose of the trip was to attempt to ease tensions between the two countries. The initial meeting was planned for February but delayed after the US shooting of the suspected Chinese spy drone. During the meeting ‘China and the United States agreed on Monday to stabilize their intense rivalry so it does not veer into conflict, but failed to produce any major breakthrough’[i]. Both leaders of the two countries, US President Joe Biden and China’s President Xi Jinping cited the meeting as progress as concerns were able to be raised and channels of dialogue were opened. Whilst at this time, no firm plans have been put into action, the face-to-face meeting with US Secretary of State has begun a journey for the two countries to communicate further.

On 21st June, US Federal Reserve Chair Jerome Powell testified before the House of Financial Services Committee to deliver his semi-annual report to both Chambers of Congress. The next day he appeared in front of the Senate Banking Committee. After US markets had benefited from the Federal Reserve keeping interest rates unchanged, Powell ‘hinted at the likelihood of further interest rate hikes’[ii] leading to further sell offs in US equity markets.

On 22nd June, the Prime Minister of India, Narendra Modi, made his first official state visit to Washington D.C. to meet with President Joe Biden. The purpose of the meeting for Modi was to raise the status of India and strengthen ties with the US and ‘the two countries announced agreements on semiconductors, critical minerals, technology, space cooperation and defence cooperation and sales’[iii]. One deal that has already been signed off is with General Electric to produce jet engines in India for their military aircrafts with an agreement with Hindustan Aeronautics. Further deals are being planned between the two nations and no doubt will be a boost for the economy in India.

On the weekend of 24th June, Yevgeny Prigozhin, the boss of private mercenary army Wagner, led an ultimately brief rebellion starting in the city of Rostov-on-Don, Russia, moving north towards Voronezh following the path towards Moscow. ‘Wagner fighters have taken control of all military facilities in the city of Veronezh, about 500km (300 miles) south of Moscow’[iv] with which Putin made an announcement accusing Wagner fighters of “treason”. After the initial ambush Prigozhin ordered his army that was advancing on Moscow to stand down to avoid any further casualties. Whilst this has been short lived the act made a large impact calling for countries to prepare a quick response if the situation was to escalate further and ending with a tougher response from Russia on its attack on Ukraine. Mr. Prigozhin was exiled to Belarus in exchange for the criminal case being dropped against the Wagner Group.

Overall, June saw mixed performance across asset classes. Brent Crude, after starting the month at levels of c.$74 per barrel, remained at a similar level throughout the month. Japanese equities have reached a 33-year high and UK 2 year Gilt yields reaching a level of over 5%.UK 10 year Gilt yields reached highs of 4.49% and US 10 year Treasury yields 3.839%. During June Sterling also hit its highest level at c.1.28 against the US Dollar over the past year and gold slightly fell in value.

[i] https://www.reuters.com/world/china/blinken-wrap-up-rare-visit-china-may-meet-xi-jinping-2023-06-18/

[ii] https://www.reuters.com/markets/us/futures-muted-ahead-powells-congressional-testimony-2023-06-21/

[iii] https://www.reuters.com/world/biden-modi-strengthen-ties-with-defense-trade-agreements-2023-06-22/

[iv] https://www.reuters.com/world/europe/how-mercenary-revolt-has-gathered-pace-russia-2023-06-24/